10. FILIPINAS PORT SERVICES VS GO illegal or unlawful.
—Notwithstanding the silence of Filport’s bylaws on the matter,
G.R. No. 161886. March 16, 2007.*
FILIPINAS PORT SERVICES, INC., represented by stockholders, ELIODORO C.
CRUZ and MINDANAO TERMINAL AND BROKERAGE SERVICES, INC.,
petitioners, vs. VICTORIANO S. GO, ARSENIO LOPEZ CHUA, EDGAR C.
TRINIDAD, HERMENEGILDO M. TRINIDAD, JESUS SYBICO, MARY JEAN D.
CO, HENRY CHUA, JOSELITO S. JAYME, ERNESTO S. JAYME, and ELIEZER
B. DE JESUS, respondents.
Corporation Law; Section 23 of the Corporation Code explicitly provides that
unless otherwise provided therein, the corporate powers of all corporations formed
under the Code shall be exercised, all business conducted and all property of the
corporation shall be con-
_______________
*FIRST DIVISION.
454
454 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
trolled and held by a board of directors.—The governing body of a corporation
is its board of directors. Section 23 of the Corporation Code explicitly provides that
unless otherwise provided therein, the corporate powers of all corporations formed
under the Code shall be exercised, all business conducted and all property of the
corporation shall be controlled and held by a board of directors. Thus, with the
exception only of some powers expressly granted by law to stockholders (or
members, in case of non-stock corporations), the board of directors (or trustees, in
case of non-stock corporations) has the sole authority to determine policies, enter
into contracts, and conduct the ordinary business of the corporation within the
scope of its charter, i.e., its articles of incorporation, by-laws and relevant
provisions of law. Verily, the authority of the board of directors is restricted to the
management of the regular business affairs of the corporation, unless more
extensive power is expressly conferred.
Same; The raison d’être behind the conferment of corporate powers on the
board of directors is not lost on the Court—indeed, the concentration in the board of
the powers of control of corporate business and of appointment of corporate officers
and managers is necessary for efficiency in any large organization.—The raison
d’être behind the conferment of corporate powers on the board of directors is not
lost on the Court. Indeed, the concentration in the board of the powers of control of
corporate business and of appointment of corporate officers and managers is
necessary for efficiency in any large organization. Stockholders are too numerous,
scattered and unfamiliar with the business of a corporation to conduct its business
directly. And so the plan of corporate organization is for the stockholders to choose
the directors who shall control and supervise the conduct of corporate business.
Same; Notwithstanding the silence of Filport’s bylaws on the matter, we
cannot rule that the creation of the executive committee by the board of directors is
we cannot rule that the creation of the executive committee by the board of directors
is illegal or unlawful. One reason is the absence of a showing as to the true nature
and functions of said executive committee considering that the “executive
committee,” referred to in Section 35 of the Corporation Code which is as powerful
as the board of directors and in effect acting for the board itself, should be
distinguished from other
455
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Filipinas Port Services, Inc. vs. Go
committees which are within the competency of the board to create at
anytime and whose actions require ratification and confirmation by the board.
Another reason is that, ratiocinated by both the two (2) courts below, the Board of
Directors has the power to create positions not provided for in Filport’s bylaws since
the board is the cor-poration’s governing body, clearly upholding the power of its
board to exercise its prerogatives in managing the business affairs of the
corporation.
Same; If the cause of the losses is merely error in judgment, not amounting to
bad faith or negligence, directors and/or officers are not liable.—If the cause of the
losses is merely error in business judgment, not amounting to bad faith or
negligence, directors and/or officers are not liable. For them to be held accountable,
the mismanagement and the resulting losses on account thereof are not the only
matters to be proven; it is likewise necessary to show that the direc-tors and/or
officers acted in bad faith and with malice in doing the assailed acts. Bad faith does
not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of a known duty
through some motive or interest or ill-will partaking of the nature of fraud. We
have searched the records and nowhere do we find a “dishonest purpose” or “some
moral obliquity,” or “conscious doing of a wrong” on the part of the respondents that
“partakes of the nature of fraud.”
Same; Management Prerogatives; The determination of the necessity for
additional offices and/or positions in a corporation is a management prerogative
which courts are not wont to review in the absence of any proof that such prerogative
was exercised in bad faith or with malice.—The determination of the necessity for
additional offices and/or positions in a corporation is a management prerogative
which courts are not wont to review in the absence of any proof that such
prerogative was exercised in bad faith or with malice.
Same; Under the Corporation Code, where a corporation is an injured party,
its power to sue is lodged with its board of directors or trustees.—Under the
Corporation Code, where a corporation is an injured party, its power to sue is lodged
with its board of directors or trustees. But an individual stockholder may be
permitted to institute a derivative suit in behalf of the corporation in order to
protect or vindicate corporate rights whenever the officials of the corporation refuse
to sue, or when a demand upon them to file the necessary
456
456 SUPREME COURT REPORTS ANNOTATED
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 Filipinas Port Services, Inc. vs. Go
action would be futile because they are the ones to be sued, or because they
hold control of the corporation. In such actions, the corporation is the real party-in-
interest while the suing stockholder, in behalf of the corporation, is only a nominal
party.
Same; Derivative Suits; Since the ones to be sued are the directors/officers of
the corporation itself, a stockholder, like petitioner Cruz, may validly institute a
“derivative suit” to vindicate the alleged corporate injury, in which case Cruz is only
a nominal party while Filport is the real party-in-interest.—The action below is
principally for damages resulting from alleged mismanagement of the affairs of
Filport by its directors/officers, it being alleged that the acts of mismanagement are
detrimental to the interests of Filport. Thus, the injury complained of primarily
pertains to the corporation so that the suit for relief should be by the corporation.
However, since the ones to be sued are the directors/officers of the corporation itself,
a stockholder, like petitioner Cruz, may validly institute a “derivative suit” to
vindicate the alleged corporate injury, in which case Cruz is only a nominal party
while Filport is the real party-in-interest. For sure, in the prayer portion of
petitioners’ petition before the SEC, the reliefs prayed were asked to be made in
favor of Filport.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Quiason, Makalintal, Barot, Torres and Ibarra for petitioners.
Angara, Abello, Concepcion, Regala and Cruz for respondents.
GARCIA, J.:
Assailed and sought to be set aside in this petition for review on certiorari is the
Decision1 dated 19 January 2004 of
_______________
1Penned by Associate Justice Conrado M. Vasquez, Jr., and concurred in by
Associate Justices Bienvenido L. Reyes and Arsenio J. Magpale; Rollo, pp. 29-37.
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Filipinas Port Services, Inc. vs. Go
the Court of Appeals (CA) in CA-G.R. CV No. 73827, reversing an earlier decision
of the Regional Trial Court (RTC) of Davao City and accordingly dismissing the
derivative suit instituted by petitioner Eliodoro C. Cruz for and in behalf of the
stockholders of co-petitioner Filipinas Port Services, Inc. (Filport, hereafter).
The case is actually an intra-corporate dispute involving Filport, a domestic
corporation engaged in stevedoring services with principal office in Davao City. It
was initially instituted with the Securities and Exchange Commission (SEC) where
the case hibernated and remained unresolved for several years until it was
overtaken by the enactment into law, on 19 July 2000, of Republic Act (R.A.) No.
8799, otherwise known as the Securities Regulation Code. From the SEC and
consistent with R.A. No. 8799, the case was transferred to the RTC of Manila,
Branch 14, sitting as a corporate court. Subsequently, upon respondents’ motion,
the case eventually landed at the RTC of Davao City where it was docketed as Civil
Case No. 28,552-2001. RTC-Davao City, Branch 10, ruled in favor of the petitioners
prompting respondents to go to the CA in CA-G.R. CV No. 73827. This time, the
respondents prevailed, hence, this petition for review by the petitioners.
The relevant facts:
On 4 September 1992, petitioner Eliodoro C. Cruz, Filport’s president from
1968 until he lost his bid for reelection as Filport’s president during the general
stockholders’ meeting in 1991, wrote a letter2 to the corporation’s Board of
Directors questioning the board’s creation of the following positions with a monthly
remuneration of P13,050.00 each, and the election thereto of certain members of
the board, to wit:
Asst. Vice-President for Corporate Planning—Edgar C. Trinidad (Director)
_______________
2Id., at pp. 56-57.
458
458 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
Asst. Vice-President for Operations—Eliezer B. de Jesus (Director)
Asst. Vice-President for Finance—Mary Jean D. Co (Director)
Asst. Vice-President for Administration—Henry Chua (Director)
Special Asst. to the Chairman—Arsenio Lopez Chua (Director)
Special Asst. to the President—Fortunato V. de Castro
In his aforesaid letter, Cruz requested the board to take necessary action/actions
to recover from those elected to the aforementioned positions the salaries they have
received.
On 15 September 1992, the board met and took up Cruz’s letter. The records do
not show what specific action/actions the board had taken on the letter. Evidently,
whatever action/actions the board took did not sit well with Cruz.
On 14 June 1993, Cruz, purportedly in representation of Filport and its
stockholders, among which is herein co-petitioner Mindanao Terminal and
Brokerage Services, Inc. (Minterbro), filed with the SEC a petition 3 which he
describes as a derivative suit against the herein respondents who were then the
incumbent members of Filport’s Board of Directors, for alleged acts of
mismanagement detrimental to the interest of the corporation and its shareholders
at large, namely:
1. “1.creation of an executive committee in 1991 composed of seven (7)
members of the board with compensation of P500.00 for each member per
meeting, an office which, to Cruz, is not provided for in the by-laws of the
Page 2 of 8
 corporation and whose function merely duplicates those of the President
and General Manager;
2. 2.increase in the emoluments of the Chairman, Vice-President, Treasurer
and Assistant General Manager which increases are greatly
disproportionate to the volume and character of the work of the directors
holding said positions;
3. 3.re-creation of the positions of Assistant Vice-Presidents (AVPs) for
Corporate Planning, Operations, Finance and Administration, and the
election thereto of board members Edgar C. Trinidad, Eliezer de Jesus,
Mary Jean D. Co and Henry Chua, respectively; and
_______________
3Id., at pp. 38-44.
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VOL. 518, MARCH 16, 2007 459
Filipinas Port Services, Inc. vs. Go
1. 4.creation of the additional positions of Special Assistants to the President
and the Board Chairman, with Fortunato V. de Castro and Arsenio Lopez
Chua elected to the same, the directors elected/appointed thereto not
doing any work to deserve the monthly remuneration of P13,050.00
each.”
In the same petition, docketed as SEC Case No. 06-93-4491, Cruz alleged that
despite demands made upon the respondent members of the board of directors to
desist from creating the positions in question and to account for the amounts
incurred in creating the same, the demands were unheeded. Cruz thus prayed that
the respondent members of the board of directors be made to pay Filport, jointly
and severally, the sums of money variedly representing the damages incurred as a
result of the creation of the offices/positions complained of and the aggregate
amount of the questioned increased salaries.
In their common Answer with Counterclaim,4 the respondents denied the
allegations of mismanagement and materially averred as follows:
1. “1.the creation of the executive committee and the grant of per diems for
the attendance of each member are allowed under the by-laws of the
corporation;
2. 2.the increases in the salaries/emoluments of the Chairman, Vice-
President, Treasurer and Assistant General Manager were well within
the financial capacity of the corporation and well-deserved by the officers
elected thereto; and
3. 3.the positions of AVPs for Corporate Planning, Operations, Finance and
Administration were already in existence during the tenure of Cruz as
president of the corporation, and were merely recreated by the Board,
adding that all those appointed to said positions of Assistant Vice
Presidents, as well as the additional position of Special Assistants to the
Chairman and the President, rendered services to deserve their
compensation.”
_______________
4Id., at pp. 45-51.
460
460 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
In the same Answer, respondents further averred that Cruz and his co-petitioner
Minterbro, while admittedly stockholders of Filport, have no authority nor
standing to bring the so-called “derivative suit” for and in behalf of the corporation;
that respondent Mary Jean D. Co has already ceased to be a corporate director and
so with Fortunato V. de Castro, one of those holding an assailed position; and that
no demand to cease and desist from further committing the acts complained of was
made upon the board. By way of affirmative defenses, respondents asserted that
(1) the petition is not duly verified by petitioner Filport which is the real party-in-
interest; (2) Filport, as represented by Cruz and Minterbro, failed to exhaust
remedies for redress within the corporation before bringing the suit; and (3) the
petition does not show that the stockholders bringing the suit are joined as nominal
parties. In support of their counterclaim, respondents averred that Cruz filed the
alleged derivative suit in bad faith and purely for harassment purposes on account
of his non-reelection to the board in the 1991 general stockholders’ meeting.
As earlier narrated, the derivative suit (SEC Case No. 06-93-4491) hibernated
with the SEC for a long period of time. With the enactment of R.A. No. 8799, the
case was first turned over to the RTC of Manila, Branch 14, sitting as a corporate
court. Thereafter, on respondents’ motion, it was eventually transferred to the RTC
of Davao City whereat it was docketed as Civil Case No. 28,552-2001 and raffled to
Branch 10 thereof.
On 10 December 2001, RTC-Davao City rendered its decision5 in the case. Even
as it found that (1) Filport’s Board of Directors has the power to create positions
not provided for in the by-laws of the corporation since the board is the governing
body; and (2) the increases in the salaries of the board chairman, vice-president,
treasurer and assistant general manager are reasonable, the trial court
nonetheless rendered judgment
_______________
5Id., at pp. 109-114.
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Filipinas Port Services, Inc. vs. Go
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against the respondents by ordering the directors holding the positions of Assistant
Vice President for Corporate Planning, Special Assistant to the President and
Special Assistant to the Board Chairman to refund to the corporation the salaries
they have received as such officers “considering that Filipinas Port Services is not
a big corporation requiring multiple executive positions” and that said positions
“were just created for accommodation.” We quote the fallo of the trial court’s
decision.
“WHEREFORE, judgment is rendered ordering: Edgar C. Trinidad under the third
and fourth causes of action to restore to the corporation the total amount of salaries
he received as assistant vice president for corporate planning; and likewise
ordering Fortunato V. de Castro and Arsenio Lopez Chua under the fourth cause
of action to restore to the corporation the salaries they each received as special
assistants respectively to the president and board chairman. In case of insolvency
of any or all of them, the members of the board who created their positions are
subsidiarily liable.
The counter claim is dismissed.”
From the adverse decision of the trial court, herein respondents went on appeal to
the CA in CA-G.R. CV No. 73827.
In its decision6 of 19 January 2004, the CA, taking exceptions to the findings of
the trial court that the creation of the positions of Assistant Vice President for
Corporate Planning, Special Assistant to the President and Special Assistant to the
Board Chairman was merely for accommodation purposes, granted the
respondents’ appeal, reversed and set aside the appealed decision of the trial court
and accordingly dismissed the so-called derivative suit filed by Cruz, et al., thus:
“IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the
challenged decision is REVERSED and SET ASIDE,
_______________
6Supra at note 1.
462
462 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
and a new one entered DISMISSING Civil Case No. 28,552-2001 with no
pronouncement as to costs.
SO ORDERED.”
Intrigued, and quite understandably, by the fact that, in its decision, the CA, before
proceeding to address the merits of the appeal, prefaced its disposition with the
statement reading “[T]he appeal is bereft of merit,”7 thereby contradicting the
very fallo of its own decision and the discussions made in the body thereof,
respondents filed with the appellate court a Motion For Nunc Pro Tunc
Order,8 thereunder praying that the phrase “[T]he appeal is bereft of merit,” be
corrected to read “[T]he appeal is impressed with merit.” In its resolution9 of 23
April 2004, the CA granted the respondents’ motion and accordingly effected the
desired correction.
Hence, petitioners’ present recourse.
Petitioners assigned four (4) errors allegedly committed by the CA. For clarity,
we shall formulate the issues as follows:
1. “1.Whether the CA erred in holding that Filport’s Board of Directors acted
within its powers in creating the executive committee and the positions
of AVPs for Corporate Planning, Operations, Finance and
Administration, and those of the Special Assistants to the President and
the Board Chairman, each with corresponding remuneration, and in
increasing the salaries of the positions of Board Chairman, Vice-
President, Treasurer and Assistant General Manager; and
2. 2.Whether the CA erred in finding that no evidence exists to prove that (a)
the positions of AVP for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman were created
merely for accommodation, and (b) the salaries/emoluments
corresponding to said positions were actually paid to and received by the
directors appointed thereto.”
_______________
7 CA decision, p. 5; Rollo, p. 33.
8 Id., at pp. 292-293.
9 Id., at pp. 305-306.
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Filipinas Port Services, Inc. vs. Go
For their part, respondents, aside from questioning the propriety of the instant
petition as the same allegedly raises only questions of fact and not of law, also put
in issue the purported derivative nature of the main suit initiated by petitioner
Eliodoro C. Cruz allegedly in representation of and in behalf of Filport and its
stockholders.
The petition is bereft of merit.
It is axiomatic that in petitions for review on certiorari under Rule 45 of the
Rules of Court, only questions of law may be raised and passed upon by the Court.
Factual findings of the CA are binding and conclusive and will not be reviewed or
disturbed on appeal.10 Of course, the rule is not cast in stone; it admits of certain
exceptions, such as when the findings of fact of the appellate court are at variance
with those of the trial court,11 as here. For this reason, and for a proper and
complete resolution of the case, we shall delve into the records and reexamine the
same.
The governing body of a corporation is its board of directors. Section 23 of the
Corporation Code12 explicitly provides that unless otherwise provided therein, the
corporate powers of all corporations formed under the Code shall be exercised, all
business conducted and all property of the corporation shall be controlled and held
by a board of directors. Thus, with the exception only of some powers expressly
granted by law to stockholders (or members, in case of non-stock corporations), the
Page 4 of 8
board of directors (or trustees, in case of non-stock corporations) has the sole
authority to determine policies, enter into contracts, and conduct the ordinary
business of the corporation within the scope of its charter, i.e., its articles of
incorporation, by-laws and relevant provisions of law. Verily, the authority of the
board of directors is restricted to the
_______________
Bank of the Philippine Islands v. Carlos Leobrero, G.R. No. 137147,
10
November 18, 2003, 416 SCRA 15, 18.
11 Id.
12 Batas Pambansa Blg. 68.
464
464 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
management of the regular business affairs of the corporation, unless more
extensive power is expressly conferred.
The raison d’être behind the conferment of corporate powers on the board of
directors is not lost on the Court. Indeed, the concentration in the board of the
powers of control of corporate business and of appointment of corporate officers and
managers is necessary for efficiency in any large organization. Stockholders are too
numerous, scattered and unfamiliar with the business of a corporation to conduct
its business directly. And so the plan of corporate organization is for the
stockholders to choose the directors who shall control and supervise the conduct of
corporate business.13
In the present case, the board’s creation of the positions of Assistant Vice
Presidents for Corporate Planning, Operations, Finance and Administration, and
those of the Special Assistants to the President and the Board Chairman, was in
accordance with the regular business operations of Filport as it is authorized to do
so by the corporation’s by-laws, pursuant to the Corporation Code.
The election of officers of a corporation is provided for under Section 25 of the
Code which reads:
“Sec. 25. Corporate officers, quorum.—Immediately after their election, the
directors of a corporation must formally organize by the election of a president, who
shall be a director, a treasurer who may or may not be a director, a secretary who
shall be a resident and citizen of the Philippines, and such other officers as may
be provided for in the by-laws.” (Emphasis supplied.)
In turn, the amended Bylaws of Filport14 provides the following:
_______________
Aguedo Agbayani, Commentaries and Jurisprudence on the Commercial
13
Laws of the Phils., 1980 ed., Vol. III.
14 Rollo, pp. 120-130.
465
VOL. 518, MARCH 16, 2007 465
Filipinas Port Services, Inc. vs. Go
“Officers of the corporation, as provided for by the bylaws, shall be elected
by the board of directors at their first meeting after the election of Directors. x
xx
The officers of the corporation shall be a Chairman of the Board, President, a
Vice-President, a Secretary, a Treasurer, a General Manager and such other
officers as the Board of Directors may from time to time provide, and these
officers shall be elected to hold office until their successors are elected and
qualified.” (Emphasis supplied.)
Likewise, the fixing of the corresponding remuneration for the positions in question
is provided for in the same by-laws of the corporation, viz.:
“x x x The Board of Directors shall fix the compensation of the officers and
agents of the corporation.” (Emphasis supplied.)
Unfortunately, the bylaws of the corporation are silent as to the creation by its
board of directors of an executive committee. Under Section 3515 of the
Corporation Code, the creation of an executive committee must be provided for in
the bylaws of the corporation.
Notwithstanding the silence of Filport’s bylaws on the matter, we cannot rule
that the creation of the executive committee by the board of directors is illegal or
unlawful. One reason is the absence of a showing as to the true nature and
functions of said executive committee considering that the “executive committee,”
referred to in Section 35 of the Corporation Code which is as powerful as the board
of directors and in effect acting for the board itself, should be distinguished from
_______________
15 Sec. 35. Executive committee.—The bylaws of a corporation may create an
executive committee, composed of not less than three members of the board to be
appointed by the board. Said committee may act, by majority vote of all its
members, on such specific matters within the competence of the board, as may be
delegated to it in the by-laws or on a majority vote of the board, except with respect
to: x x x
466
466 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
other committees which are within the competency of the board to create at
anytime and whose actions require ratification and confirmation by the
board.16 Another reason is that, ratiocinated by both the two (2) courts below, the
Board of Directors has the power to create positions not provided for in Filport’s
bylaws since the board is the corporation’s governing body, clearly upholding the
power of its board to exercise its prerogatives in managing the business affairs of
the corporation.
As well, it may not be amiss to point out that, as testified to and admitted by
petitioner Cruz himself, it was during his incumbency as Filport president that the
Page 5 of 8
executive committee in question was created, and that he was even the one who
moved for the creation of the positions of the AVPs for Operations, Finance and
Administration. By his acquiescence and/or ratification of the creation of the
aforesaid offices, Cruz is virtually precluded from suing to declare such acts of the
board as invalid or illegal. And it makes no difference that he sues in behalf of
himself and of the other stockholders. Indeed, as his voice was not heard in protest
when he was still Filport’s president, raising a hue and cry only now leads to the
inevitable conclusion that he did so out of spite and resentment for his non-
reelection as president of the corporation.
With regard to the increased emoluments of the Board Chairman, Vice-
President, Treasurer and Assistant General Manager which are supposedly
disproportionate to the volume and nature of their work, the Court, after a judicious
scrutiny of the increase vis-à-vis the value of the services rendered to the
corporation by the officers concerned, agrees with the findings of both the trial and
appellate courts as to the reasonableness and fairness thereof.
_______________
16H. de Leon, The Corporation Code of the Phils., 2002 ed., pp. 310-311.
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Filipinas Port Services, Inc. vs. Go
Continuing, petitioners contend that the CA did not appreciate their evidence as to
the alleged acts of mismanagement by the then incumbent board. A perusal of the
records, however, reveals that petitioners merely relied on the testimony of Cruz
in support of their bold claim of mismanagement. To the mind of the Court, Cruz’
testimony on the matter of mismanagement is bereft of any foundation. As it were,
his testimony consists merely of insinuations of alleged wrongdoings on the part of
the board. Without more, petitioners’ posture of mismanagement must fall and
with it goes their prayer to hold the respondents liable therefor.
But even assuming, in gratia argumenti, that there was mismanagement
resulting to corporate damages and/or business losses, still the respondents may
not be held liable in the absence, as here, of a showing of bad faith in doing the acts
complained of.
If the cause of the losses is merely error in business judgment, not amounting
to bad faith or negligence, directors and/or officers are not liable.17 For them to be
held accountable, the mismanagement and the resulting losses on account thereof
are not the only matters to be proven; it is likewise necessary to show that the
directors and/or officers acted in bad faith and with malice in doing the assailed
acts. Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach
of a known duty through some motive or interest or ill-will partaking of the nature
of fraud.18 We have searched the records and nowhere do we find a “dishonest
purpose” or “some moral obliquity,” or “conscious doing of a wrong” on the part of
the respondents that “partakes of the nature of fraud.”
_______________
17 Board of Liquidators v. Heirs of Maximo M. Kalaw, et al., G.R. No. L-18805,
August 15, 1967, 20 SCRA 987.
18 Philippine Stock Exchange v. Court of Appeals, G.R. No. 125469, October 27,
1997, 281 SCRA 232.
468
468 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
We thus extend concurrence to the following findings of the CA, affirmatory of those
of the trial court:
“x x x As a matter of fact, it was during the term of appellee Cruz, as president and
director, that the executive committee was created. What is more, it was appellee
himself who moved for the creation of the positions of assistant vice presidents for
operations, for finance, and for administration. He should not be heard to complain
thereafter for similar corporate acts.
The increase in the salaries of the board chairman, president, treasurer, and
assistant general manager are indeed reasonable enough in view of the
responsibilities assigned to them, and the special knowledge required, to be able to
effectively discharge their respective functions and duties.”
Surely, factual findings of trial courts, especially when affirmed by the CA, are
binding and conclusive on this Court.
There is, however, a factual matter over which the CA and the trial court parted
ways. We refer to the accommodation angle.
The trial court was with petitioner Cruz in saying that the creation of the
positions of the three (3) AVPs for Corporate Planning, Special Assistant to the
President and Special Assistant to the Board Chairman, each with a salary of
P13,050.00 a month, was merely for accommodation purposes considering that
Filport is not a big corporation requiring multiple executive positions. Hence, the
trial court’s order for said officers to return the amounts they received as
compensation.
On the other hand, the CA took issue with the trial court and ruled that Cruz’s
accommodation theory is not based on facts and without any evidentiary
substantiation.
We concur with the line of the appellate court. For truly, aside from Cruz’s bare
and self-serving testimony, no other evidence was presented to show the fact of
“accommodation.” By itself, the testimony of Cruz is not enough to support his
469
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Filipinas Port Services, Inc. vs. Go
claim that accommodation was the underlying factor behind the creation of the
aforementioned three (3) positions.
It is elementary in procedural law that bare allegations do not constitute
evidence adequate to support a conclusion. It is basic in the rule of evidence that
he who alleges a fact bears the burden of proving it by the quantum of proof
Page 6 of 8
required. Bare allegations, unsubstantiated by evidence, are not equivalent to proof
under the Rules of Court.19 The party having the burden of proof must establish
his case by a preponderance of evidence.20
Besides, the determination of the necessity for additional offices and/or
positions in a corporation is a management prerogative which courts are not wont
to review in the absence of any proof that such prerogative was exercised in bad
faith or with malice.
Indeed, it would be an improper judicial intrusion into the internal affairs of
Filport were the Court to determine the propriety or impropriety of the creation of
offices therein and the grant of salary increases to officers thereof. Such are
corporate and/or business decisions which only the corporation’s Board of Directors
can determine.
So it is that in Philippine Stock Exchange, Inc. v. CA,21the Court unequivocally
held:
“Questions of policy or of management are left solely to the honest decision of the
board as the business manager of the corporation, and the court is without
authority to substitute its judgment for that of the board, and as long as it acts in
good faith and in the exercise of honest judgment in the interest of the corporation,
its orders are not reviewable by the courts.”
_______________
Garcia v. De Vera, A.C. No. 6052, December 11, 2003, 418 SCRA 27.
19
Pastor v. Philippine National Bank, G.R. No. 141316, November 20,
20
2003, 416 SCRA 283.
21 Supra.
470
470 SUPREME COURT REPORTS ANNOTATED
Filipinas Port Services, Inc. vs. Go
In a last-ditch attempt to salvage their cause, petitioners assert that the CA went
beyond the issues raised in the court of origin when it ruled on the absence of
receipt of actual payment of the salaries/emoluments pertaining to the positions of
Assistant Vice-President for Corporate Planning, Special Assistant to the Board
Chairman and Special Assistant to the President. Petitioners insist that the issue
of non-payment was never raised by the respondents before the trial court, as in
fact, the latter allegedly admitted the same in their Answer With Counterclaim.
We are not persuaded.
By claiming that Filport suffered damages because the directors appointed to
the assailed positions are not doing anything to deserve their compensation,
petitioners are saddled with the burden of proving that salaries were actually paid.
Since the trial court, in effect, found that the petitioners successfully proved
payment of the salaries when it directed the reimbursements of the same,
respondents necessarily have to raise the issue on appeal. And the CA rightly
resolved the issue when it found that no evidence of actual payment of the salaries
in question was actually adduced. Respondents’ alleged admission of the fact of
payment cannot be inferred from a reading of the pertinent portions of the parties’
respective initiatory pleadings. Respondents’ allegations in their Answer With
Counterclaim that the officers corresponding to the positions created “performed
the work called for in their positions” or “deserve their compensation,” cannot be
interpreted to mean that they were “actually paid” such compensation. Directly
put, the averment that “one deserves one’s compensation” does not necessarily
carry the implication that “such compensation was actually remitted or received.”
And because payment was not duly proven, there is no evidentiary or factual basis
for the trial court to direct respondents to make reimbursements thereof to the
corporation.
This brings us to the respondents’ claim that the case filed by the petitioners
before the SEC, which eventually landed in
471
VOL. 518, MARCH 16, 2007 471
Filipinas Port Services, Inc. vs. Go
RTC-Davao City as Civil Case No. 28,552-2001, is not a derivative suit, as
maintained by the petitioners.
We sustain the petitioners.
Under the Corporation Code, where a corporation is an injured party, its power
to sue is lodged with its board of direc-tors or trustees. But an individual
stockholder may be permitted to institute a derivative suit in behalf of the
corporation in order to protect or vindicate corporate rights whenever the officials
of the corporation refuse to sue, or when a demand upon them to file the necessary
action would be futile because they are the ones to be sued, or because they hold
control of the corporation.22 In such actions, the corporation is the real party-in-
interest while the suing stockholder, in behalf of the corporation, is only a nominal
party.23
Here, the action below is principally for damages resulting from alleged
mismanagement of the affairs of Filport by its directors/officers, it being alleged
that the acts of mismanagement are detrimental to the interests of Filport. Thus,
the injury complained of primarily pertains to the corporation so that the suit for
relief should be by the corporation. However, since the ones to be sued are the
directors/officers of the corporation itself, a stockholder, like petitioner Cruz, may
validly institute a “derivative suit” to vindicate the alleged corporate injury, in
which case Cruz is only a nominal party while Filport is the real party-in-interest.
For sure, in the prayer portion of petitioners’ petition before the SEC, the reliefs
prayed were asked to be made in favor of Filport.
Besides, the requisites before a derivative suit can be filed by a stockholder are
present in this case, to wit:
_______________
22 Chua v. Court of Appeals, G.R. No. 150793, November 19, 2004, 443 SCRA
259, 267.
23 Asset Privatization Trust v. Court of Appeals, 360 Phil. 768, 804-805; 300
SCRA 579, 614 (1998).
472
Page 7 of 8
472 SUPREME COURT REPORTS ANNOTATED Note.—The whole purpose of the law authorizing a derivative suit is to allow
the stockholder/member to enforce rights which are derivative (secondary) in
Filipinas Port Services, Inc. vs. Go nature. A derivative action is a suit by a shareholder/member to enforce a corporate
cause of action. (R.N. Symaco Trading Corporation vs. Santos, 467 SCRA
1. “a)the party bringing suit should be a shareholder as of the time of the act 312 [2005])
or transaction complained of, the number of his shares not being
material;
2. b)he has tried to exhaust intra-corporate remedies, i.e., has made a
demand on the board of directors for the appropriate relief but the latter
has failed or refused to heed his plea; and
3. c)the cause of action actually devolves on the corporation, the wrongdoing
or harm having been, or being caused to the corporation and not to the
particular stockholder bringing the suit.”24

Indisputably, petitioner Cruz (1) is a stockholder of Filport; (2) he sought without

success to have its board of directors remedy what he perceived as wrong when he
wrote a letter requesting the board to do the necessary action in his complaint; and
(3) the alleged wrong was in truth a wrong against the stockholders of the
corporation generally, and not against Cruz or Minterbro, in particular. In the end,
it is Filport, not Cruz which directly stands to benefit from the suit. And while it is
true that the complaining stockholder must show to the satisfaction of the court
that he has exhausted all the means within his reach to attain within the
corporation itself the redress for his grievances, or actions in conformity to his
wishes, nonetheless, where the corporation is under the complete control of the
principal defendants, as here, there is no necessity of making a demand upon the
directors. The reason is obvious: a demand upon the board to institute an action
and prosecute the same effectively would have been useless and an exercise in
futility. In fine, we rule and so hold that the petition filed with the SEC at the
instance of Cruz, which ultimately found its way to the RTC of Davao City as Civil
Case No. 28,552-2001, is a derivative suit of which Cruz has the necessary legal
standing to institute.

_______________

24 San Miguel Corporation, represented by Eduardo De Los Angeles v. Ernest

Khan, G.R. No. 85339, August 11, 1989, 176 SCRA 447, 462.
473
VOL. 518, MARCH 16, 2007 473
Rosal vs. Commission on Elections
WHEREFORE, the petition is DENIED and the challenged decision of the CA is
AFFIRMED in all respects.
No pronouncement as to costs.
SO ORDERED.
Puno (C.J., Chairperson), Sandoval-Gutierrez, Corona and Azcuna, JJ.,
concur.
Petition denied, challenged decision affirmed.
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